Higher volumes and price-led growth, coupled with operating leverage benefits are likely to help the Maggi noodles maker report a healthy double-digit growth in earnings.
Core Earnings
The company’s net profit for the quarter is seen rising 18% year-on-year (YoY) to Rs 745 crore, according to the average of estimates given by eight brokerage firms. Revenue is seen rising 10.3% to Rs 4,697 crore and the operating profit by 15.3% to Rs 1,126 crore.
Sequentially however, the earnings will be weak, with the net profit likely to drop by nearly 8%, weighed down by a 7% fall in revenue and 8.4% decline in operating profit.
In the September quarter, Nestle crossed Rs 5,000 crore in turnover, which was the first time ever in any quarter in the history of the company.
Volumes
Kotak Institutional Equities has estimated a 7% YoY growth in volumes for the quarter, whereas Nuvama Institutional Equities sees it at 6%.
Operational Performance
Most analysts expect a sharp improvement in the operational performance of the company, aided by the deflation in edible oils, wheat, packaging and dairy prices. “We don’t see any major worry on RM (raw material) inflation for Nestle and thus, build 100 bps QoQ (+260 bps YoY) improvement in gross margins to 57.5%, leading to 170 bps YoY expansion in EBITDA margin to 24.7%,” YES Securities said.
Monitorables
The market will eye the performance of both domestic and exports in the quarter. Nestle’s domestic segment includes prepared dishes, milk products, confectionery, beverages, and petcare.
Outlook on raw material prices will also be closely tracked as this will help gauge the profitability in the coming quarters.
Post September quarter earnings, Nestle had said that uneven rain and rain deficit, which may impact production of maize, sugar, oilseeds and spices, could adversely affect pricing. Further, coffee continues to be volatile because of the global supply deficit.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)
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